New White House rules for help on mortgages

The White House plans to announce on Friday that it will require lenders to lower the mortgage payments of some unemployed workers and encourage lenders to eliminate some principal debt of homeowners who owe more than their home is worth, sources familiar with the plan said on Thursday.

The plan comes as President Barack Obama is under increasing political pressure to change his strategy for helping struggling homeowners and stem the tide of rising foreclosures and is the second major housing initiative announced in as many months.

Delinquencies on U.S. mortgages rose to nearly 14 percent in late 2009, led by a sharp increase in seriously overdue home loans held by the most credit-worthy borrowers, U.S. banking regulators said earlier on Thursday.

Obama’s $75 billion homeowner assistance program announced last year has been widely criticized as ineffective by both Democrats and Republicans on Capitol Hill.

Representative Jackie Speier, a California Democrat who backs Obama on most issues, told a top administration official responsible for housing policy on Thursday that White House efforts so far have “failed miserably.”

The new efforts include at least three and at most six months of temporary assistance for jobless workers and incentives for mortgage servicers to write down part of the principal balance, sources said.

The plan also aims to increase the Federal Housing Administration efforts to keep people in their homes as the cause for delinquencies has shifted from sub-prime borrowers to the unemployed and “underwater” borrowers: people who owe more than their house is worth.

Recognizing the difficulties for so-called loan servicers to modify loans for unemployed workers, the administration’s plan aims for lenders to cut payments on existing loans to 31 percent of a borrowers income.

Howard Glaser, a mortgage industry analyst in Washington called the decision to focus on jobless and underwater borrowers a significant and welcome shift in the administration’s strategy to stabilize housing market.

“They have recognized that the complexion of the mortgage crisis has changed. This is no longer about risky subprime loans — its about home value declines that have made default a rational economic choice for homeowners,” Glaser said in a note to clients.

It would use up to $14 billion of what remains of the $700 billion bailout to let borrowers refinance up to 115 percent of the value of the homes they live in.

The FHA plan is aimed at getting servicers to write down some or all of the so-called piggyback loans that have been a major sticking point for modifications thus far.

John Courson, chief executive officer of the Mortgage Bankers Association, welcomed the administration’s efforts to expand its homeowner assistance.

“As the causes of the ongoing foreclosure crisis have shifted, we need to keep looking for new ways to help delinquent and underwater borrowers,” Courson said in a prepared statement.

The principal reduction plan would be administered under the existing Home Affordable Modification Plan and is modeled after a principal reduction plan announced this week by Bank of America.

Under pressure from Massachusetts Attorney General Martha Coakley, Bank of America Corp said on Wednesday it would offer what could be up to $3 billion in loan forgiveness to about 45,000 troubled homeowners.

Bank of America pledged to offer an “earned principal forgiveness” of up to 30 percent for homeowners nationwide who owe more than 120 percent of the value of their home.

Bryan Whalen, a managing director at money manager TCW, which manages more than $115 billion, including mortgage-backed securities, cautioned that this could be aimed more at public opinion than the mortgage market.

“If this program is anything like Bank of America’s — in terms of scale — I expect the market to not react to it,” Whalen said.

“The BofA program involves 45,000 loans — it doesn’t move the needle one bit. The market will take a ‘show me’ approach to the White House announcement,” Whalen said.

The plan comes just a few days after Treasury Secretary Timothy Geithner launched what could be a years-long process of overhauling the government’s role in helping Americans buy homes.

Geithner told lawmakers the government should continue to play some role in any new system of housing finance Congress develops, although he said mortgage finance giants Fannie Mae and Freddie Mac should not be nationalized.

“As long as the administration continues to sidestep the larger issues such as job creation and how they intend to deal with Fannie and Freddie, subsequent misadventures (by the government) into the mortgage market will continue to be an exercise in futility,” said Representative Darrell Issa of California, one of the hardest hit states.

3 COMMENTS

Yeah that makes sense. Give more money to bankers to write down some of the principle when they wouldn’t even be in business had the People not bailed them out. How about we give the money to the People to pay to bankers and the bankers be damned. Not one single bank has followed through on the promises to loan out money given for bail-outs. On the contrary, they have instead invested the money in more shaky derivatives and paid themselves handsome bonuses. There is no indication this is going to change any time soon and every indication we are in for another precipitous fall in the housing, stock, and monetary markets.

Oh, you know there’s going to be another fall in the housing, stock, and monetary markets, it’s inevitable. Just like under Reagan, once the government spending of borrowed money stops, the false economy that it supports stops.
I predict that when that happens in the next couple of years the next fall will be the big one that we stopped last year. In the end, all we did was shift when it was going to happen.

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